Posts Tagged ‘Reinventing the CFO’

Discipline #7 – CFO as the Champion of Change

August 26th, 2009 Comments off

            After covering the first six chapters of Jeremy Hope’s book, Reinventing the CFO, it’s time for the last chapter. As I previously mentioned, this is one of the books that you can continue referring back to for those subtle reminders since I believe his book somewhat transcends whatever “technical” changes may be happening on the Accounting and Finance front. In Hope’s final chapter he discusses the CFO as a Champion of Change.  This is probably the only point in the book where I tend to stray a bit from Hope’s view and believe the role of the CFO should extend further than what Hope suggests.

            Hope’s seventh chapter starts out “The role of transforming the finance operation…” and he then further discusses in detail the case for transforming finance. However, as we continue to see the role of the CFO expand and the CFO is expected to drive the financial results of the organization, it’s necessary for the CFO to be the Champion of Change, in partnership with a CEO or President, for the entire organization. Merely driving change in finance may result in improved reporting, clarity in results, or the establishment of standards, but change needs to be driven throughout the organization to achieve improved financial performance. This is also one of the most difficult challenges for the CFO since it will likely involve modifications, or sometimes entire shifts, in the company culture.

            Hope itemizes a list of suggested action items he believes will support the CFO in this mission:

§  Make a compelling case for change

§  Set some directional goals and get started

§  Gain the support of key people

§  Involve operating people in the change process

§  Avoid more complexity

§  Show some early wins

§  Be patient but maintain the momentum

            The other obvious point is the extent to which the CFO will drive change across the entire organization will depend on the size of the organization. You’re going to be much more hands on with a smaller entity, perhaps < $250 million, than in a larger, perhaps globally diverse operating entity. While I was involved in the planning, and directed significant changes during my time w/ MGE, those accomplishments were primarily focused within our North American operations. No doubt they were coordinated with our HQ in France, the efforts typically did not extend to our LAM or EMEA partners. Those changes, however, crossed over to R&D, Purchasing, Services, and deep within the Finance department. We made incredible changes over the 4-years and it meant maintaining effective communications with each one of those areas, having clear goals, communicating the progress of those goals, and knowing that we had completion windows that extended over Quarters, not weeks.

            For a smaller organization that has been set in its ways for many years, the change comes with more resistance and a slower rate. There needs to be a sensitivity to the change you are trying to implement and it’s likely that your need to communicate in such an environment may need to be more extensive. Many of my peers have commented in their blogs and twitter recently about the changing face of the CFO and this is one area that will demand that change. Change is the biggest challenge for the CFO, and without the proper approach and sensitivity, could result in a CFO starting their next search. You are the Champion of Change, but it’s your approach that will determine your success.


Thanks for reading . . . .


Jeffrey Ishmael

Discipline #4: CFO as a Warrior of Waste

June 17th, 2009 Comments off

            In the last segment on “Reinventing the CFO”, I covered the CFO role as the Architect of Adaptive Management.  The 4th discipline in Jeremy Hope’s book is CFO; Warrior of Waste. In this segment, Hope addresses that topic of deploying the economic resources of the firm and tabling the question of whether all those resources are creating the necessary return/value for the firm. He doesn’t so much address the absolute dollars that are being spent, so much as measuring the return on the resources deployed. One of the key quotes in the chapter, which summarizes the views of the 19th century Italian economist Vilfredo Pareto “economic results are directly proportionate to revenue, while costs are directly proportionate to transactions and activities.” In short, Pareto was the primary source behind the “80/20” rule that so many now enjoy referencing.


            The challenge, as discussed by Hope, and referencing the work of Peter Drucker, is identifying the specific costs that are deployed in support of the 20% that generate 80% of the results. While it might be possible for a moderate level of expenses, or projects, it’s just not feasible since a large percentage of a firm’s operating expenses go towards supporting the entire entity. Hope discusses some key points, which have been adopted by leading global organizations, which contribute to their position as market-leading brands.

  • Dismantle head office bureaucracy
  • Manage processes and flow rather than functions and activities
  • Manage fixed costs through directional goals and ratios than cost budgets
  • Make central services responsive to internal customers
  • Match capacity to current demand
  • Ensure that all projects are necessary and add value

I certainly can’t say that I’ve had success in achieving the first point above, since I have always been part of a larger finance consortium and not in the position to make that large an effect on a global organization. However, on the processes and flow, I have been able to realize some significant results through this discipline. I spent the better part of 9-months leading an EBIT-improvement project in which we placed a laser focus on key processes in the organization. Within 20-months, we moved from EBIT levels of approximately 8%, identifying processes to target, implementing changes, to achieved EBIT levels of 12%.  These were achieved not through headcount reductions, but through refining processes and the flow of resources through our firm.


In addressing the issue of matching capacity to current demand, I led the effort to implement a previously non-existent measuring of work hours related to field service personnel for the same company mentioned above. There was an implementation of a new web-based payroll system, new activity codes to track field activities, productivity classifications of those work codes, and the reporting of results by region. We were then able to effectively monitor hourly cost rates, ensure our billing rates were appropriate, and shift unused resources to territories that were encountering heavy service demands.


This section of Hope’s book is probably one of the more difficult to measure and put into play on a daily basis since it involves more than just a view of the P&L and making a judgment call that a “cost is too high”. It means really understanding how your firm operates and whether the resources you are approving are going to help you achieve your targeted financial results. It means that most evaluations will move beyond the typical “Invest in A, Sell at B price, and achieve X profit. It may very well mean that you need to develop and implement a new level of reporting to better understand the business in order to make the appropriate decisions.


Thanks for reading . . . .


Jeffrey Ishmael

Discipline #3: CFO as the Architect of Adaptive Management

June 2nd, 2009 Comments off

            In the last segment on “Reinventing the CFO”, I covered the CFO role as the Analyst and Advisor, which mainly dealt with the CFO creating a high-performance team that uses the highest level of information available to support the executive team in their decision making efforts. In a slight continuation of this theme we move into the 3rd discipline for the CFO; Architect of Adaptive Management. In Jeremy Hope’s book he discusses the need for the CFO to move away from rigid reporting structures, static sources of information, and to begin adopting new approaches to viewing market information and to try and anticipate negative market forces.


            As an “Architect of Adaptive Management” there are 6-key points that Hope believes needs to be in place to effectively master this area. Specifically:

  • Design adaptive systems from the customer’s perspective
  • Manage through continuous planning cycles
  • Make rolling forecasts the primary management tool
  • Report key metrics daily and weekly
  • Enable fast access to resources
  • Focus accountability on the relative improvement of teams


            While these might seem pretty remedial in nature, my most recent experience has reminded me how much of a challenge these points can be if the systems in place will not effectively support the generation of these data points. Although the data available has supported basic budgeting and forecasting efforts, the data/systems are not robust enough to support the daily delivery of key metrics or provide fast access to accurate information. The information has to be continually reviewed to ensure consistency with prior reporting. The management of the information is a continual struggle, which is why we’re headed towards a Q4 system upgrade. With the above factors in mind, it makes it difficult to drive accountability when the reporting that is being distributed has an inherent level of doubt that takes 3-times as much work auditing than to actually prep and export.


            However, when the systems are trusted and the data has a history of accuracy and integrity, the impact on the team is immeasurable. Towards the end of my tenure with MGE we had a high volume of reporting being requested during our merger with APC. We were operating on an older AS-400 platform while our partners were operating on a new Oracle system. We had years of passing audits with PwC, Mazars, and Moss Adams without a qualified letter. All we heard from the other side were excuses on why data couldn’t be pulled. We were achieving above industry results in Sales and EBIT. Our partners were never quite sure of their results.


            Although I was only responsible for the North American operations prior to the merger, we enjoyed a very collaborative approach with our HQ staff in France.  Through an efficient management of data resources, as well as systems that supported our end strategies, we were able to effectively execute on Hope’s 6-points. While not always executed at a perfect level, they were nonetheless strived for and often executed well. Accountability was driven from the Boardroom to the customer’s site through our Field Engineers. It was balance and execution that I look back on and appreciate.  What was achieved at MGE keeps me motivated to achieve at the companies that I now call home and strive to deliver the same excellence.  A single summary page does not do justice to Hope’s view of the CFO as the Architect of Adaptive Management, which is why it’s highly recommended reading.


Thanks for reading . . . .


Jeffrey Ishmael

Discipline #2: CFO as Analyst and Advisor

May 20th, 2009 Comments off

            In the last segment on “Reinventing the CFO”, I covered the CFO role as a Freedom Fighter, which mainly dealt with the CFO providing management with the necessary data for them to make effective decisions and execute the strategic goals of the company. Taking this role a step further, Jeremy Hope classifies the second discipline as the CFO as Analyst and Advisor.  In this role, Hope defines the role of the CFO as one that transitions from Accounting Specialist to that of a Strategic Business Partner. One of the quotes I value in this book, and worth repeating here, comes from an interview Hope conducted with the finance team at UPS, where they communicated “our business is delivering packages, not debits and credits.” Outstanding!


            One point that Hope touches on during his discussion of this discipline is that some CFO’s find themselves conflicted in this role as they believe they should “first and foremost be about effective stewardship and scorekeeping rather than business advice and score making.”  This is a good point, but Hope further clarifies that “this doesn’t mean that CFO’s can’t take their eye of the compliance and control ball.” Absolutely!  The view that I take when I come into a company, especially into a position where there may not have been a dedicated or performing CFO position, is that the position should not be looked at as an expense, but should be viewed as an investment.  With this in mind, the expectation is that the CFO delivers a quantifiable return on that investment. This return on investment is achieved by working collaboratively with all functional areas and providing the financial analysis and guidance that allows them to achieve goals. An achievement of goals that results in increased financial efficiencies, whether that might be improved working capital, reduced operating expenses, or improved gross margins by identifying deficiencies.


            A perfect example of playing this role in a company is during the time I spent working with a capital equipment company in which 30% of their revenues were Service-based.  At the time I was tasked with developing additional reporting on this segment, there was little in place.  The segment was 30% of revenues, encapsulated 35% of our headcount, and consumed a significant part of our operating budget. There were no hourly cost standards in place, nor was there any insight as to profitability of the different service segments. After a slightly painful period of changes (legacy employee habits…), we implemented a nationwide hourly reporting structure which tracked all hours according to a new site of activity codes. Based on these new activity codes, and whether they were productive or non-productive activities, we were able to calculate productivity levels by region, determine hourly costs rates, and then determine if our Service offering was appropriately priced.  Since this project had the ability to drastically improve our bottom line, I managed the effort, thus assuming the role of Analyst and Advisor.  The latter role more so as we used the data to prompt decisions about the management of hours and making proper deployment decisions.


            In Hope’s book he identifies 4-key steps “that the CFO and the finance team need to take to be in a position to act as trusted and valued business partners.”

  • Strike the right balance between control and decision support.
  • Build a high performance team.
  • Use technology to deliver high quality information.
  • Provide effective decision support.


This is clearly an area that can be discussed in much more detail. I believe that one of the more important aspects of this discipline is that assuming the role of Analyst and Advisor is not one of static reporting and involvement. This discipline requires the ability to by dynamic in the position and an ability to adapt to not only the changing needs of management, but to adapt to the changing conditions of the market and advise the team of your observations. It’s not about being continually buried in a spreadsheet, but being in tune with all aspects of the business and assuming a position to identify potential risks to the business. Have you effectively assumed the role of Analyst and Advisor?


Thanks for reading . . . .


Jeffrey Ishmael

Discipline #1: CFO as the Freedom Fighter

May 18th, 2009 Comments off

            As I tabled in my post from last week, one of the hardest disciplines to work into the day-to-day activities is to continually find ways to challenge myself and grow as a professional. As a part of a 7-part series, I discussed my continue reference and affirmation of Jeremy Hope’s book, Reinventing the CFO. Jeremy discusses 7 primary disciplines that he believes apply to the current CFO. The first discipline mentioned in his book is the CFO as Freedom Fighter.


            The primary belief behind this discipline lies behind the overwhelming levels of information and reporting that are available to the CFO, and expected to be reviewed as part of the decision-making process. Hope’s book specifically discusses how senior executives use “powerful IT systems to drill down to increasing levels of detail and demand instant answers to irrelevant questions”. Essentially, this comes back to the concept of analysis paralysis. This is ultimately a constant and increasing flow of information, which ultimately results in a significantly delayed or non-existent decision.  Hope also believes that it’s the responsibility of the CFO to “call a halt to this insane data-induced micromanagement”.  Hope further believes that the “CFO has to overcome the resistance of a number of people with vested interests in preserving the status quo”. He further comments that “These are often people whose skill is in spinning, fudging, and manipulating the information so that higher-level managers see and hear only a customized version of the truth”. Hope suggests that the CFO should:

         Rescue Managers from information overload

         Simplify systems and reports

         Focus on truth and transparency

         Avoid unnecessary tools and systems


With respect to my own approach, I have always tried to deliver reporting to my internal customers in a manner that will give them the necessary data to make well informed decision, but letting them know that further details are available if absolutely necessary for further supporting key decisions. Depending on the situation I am in, I will usually run a bit of a “diagnostic” to determine if the current level of reporting is really adding value to the existing management team. What I don’t want to do is put my team in a position where we are simply being kept busy generating a volume of reports that are not being used in any meaningful manner by management. My view is that Finance is present to drive results in the organization and the only way that we will be successful with that is providing reporting that will result in decisions that will improve productivity, justify elimination or expansion of product lines, or support longer-term strategic initiatives.


At my current company, I started my engagement at a time that I would have considered late for most Budget calendars. However, it was also a small enough company that I knew we would be able to respond quickly to changes and could still finalize a Budget before the end of the year. Coming into the company, I found a GL that was entirely too detailed for the type of business that was being operated, had been only mildly enforced during prior budgeting efforts, but not in any serious level of internal accountability. While I would normally choose to have as much detailed info as possible, I felt that we needed to take a number of steps back, budget at the 40k foot level, implement that Budget, and ultimately, perform to that Budget with the requisite levels of accountability.  I would then expand the level of detail and expectations going into 2010 once we had reestablished a solid foundation.  I also wanted a Budget that was not so complex that it couldn’t be easily followed by all employees.


Once the Budget was finalized, I took the step of providing a much higher degree of transparency than had previously been present in monthly reporting. In fact, much of the financial information had not been shared with the wider employee base. The view I adopt is that unless all parties in the game know what the ultimate goal is, then how can you expect that those goals will be achieved? To further clarify, I certainly don’t provide the same level of transparency to general staff that I do with the Board or key Executives. Nonetheless, all employees know what our key goals are.


I’ve had too many experiences at prior companies to know that having a high degree of information overload will virtually paralyze the decision process, and depending on the availability of the information, can serious cloud the accuracy of the data. I’ve also had enough experiences to know that increased levels of transparency, tempered for the specific audience, will result in a higher degree of involvement and belief in the end goals. Although I have also found that shared information can also result in undesirable situations, this is more the rare exception than a norm.  No question, the CFO is in place as a Freedom Fighter for management to execute at the highest level.


Thanks for reading . . . .


Jeffrey Ishmael

Challenging yourself when the climate is challenging you….

May 14th, 2009 Comments off

     I have found that one of the hardest disciplines to work into the day-to-day activities is to continually find ways to challenge myself and grow as a professional. I have no problem putting myself in situations where the work environment is a challenge, in fact, I pursue it and welcome it.  Over the last 18-months there has been no shortage of external challenges that have forced me to up the skillset and focus on daily operations. With that in mind, the biggest challenge has been taking time to step back and assess the overall package, what I bring to the organization, and review what areas I can improve on. 

     With respect to the introspective review, I tend to cross-reference a book I believe is a great read for all Finance staff, regardless of level; “Reinventing the CFO” by Jeremy Hope.  The book discusses how the role of the CFO has clearly moved beyond the role of Accountant and reporter to the NECESSARY role of Strategist, Architect, Engineer, & Mechanic. I’ve coined my own acronym to remember the four elements; S-E-A-M , since I believe that Finance really is the department that keeps the “seams” of the organization together and keeps everyone focused on a unified goal – positive corporate financial performance.

     In Jeremy Hope’s book, he expands on 7-key concepts that he believes are the core responsibilities of the CFO within an organization.

  • -CFO as the Freedom Fighter
  • -CFO as the Analyst & Advisor
  • -CFO as the Architect of Adaptive Management
  • -CFO as a Warrior against Waste
  • -CFO as a Master of Measurement
  • -CFO as a Regulator of Risk
  • -CFO as a Champion of Change

     The seven concepts above will be the basis of my next seven blog entries as I go through and provide an overview of Hope’s views on each of these, as well as my application of these seven principles in my daily activities. I firmly believe in the principles above and believe I practice them on a constant basis. In fact, I tend to believe that it’s my relentless pursuit of these points, in the face of adverse conditions, that might have cost me a prior position. I’m curious to challenge myself and see just how effectively I am working the points above into my work approach on a daily basis. There’s certainly no shortage of projects to complete at my company, but I believe it’s equally important to step back on a regular basis, challenge myself, and ensure that I am delivering the highest level of value in return for the investment that the company is making in me. How are you challening yourself when this difficult economy keeps challenging you?


Thanks for reading . . . .


Jeffrey Ishmael

Book Review: Reinventing the CFO

July 22nd, 2008 Comments off

     Reinventing the CFO, by Jeremy Hope, is an absolutely fantastic book if you’re looking for a little perspective on how you’re approaching your own Finance department and the value you are bringing to the company.  It goes without saying that the role of the CFO is has moved beyond that of a simple Accountant or Controller and has progressed to that of financial strategist and partner to the rest of the executive team.  There’s extensive commentary that prompts the introspective question of what value you are bringing to the organization outside of month-to-month reporting. It questions the approach you take in your personal approach and whether you are seeing realizing the highest levels of efficiency within your group.  A must read for any finance professional who has achieved, or aspires to, a senior finance position.  It never hurts to question your own approach……after all, it never hurts to have a little more humility within a Finance department.

Thanks for reading . . . .